HealthSavings Blog

Dec

20

Two Under-The-Radar Obstacles That Cripple Advisors’ HSA Production

Two Under-The-Radar Obstacles That Cripple Advisors’ HSA Production

As HSAs become a larger part of the retirement planning conversation, advisors are increasingly seeing the value of incorporating them into their toolkits. However, many HSA offerings have traditionally been hobbled by limited fund lineups, which means that advisors aren’t able to match their HSA lineups to their clients’ 401(k) lineups. In addition, HSA providers often don’t provide advisors with the ability to be compensated based on their managed assets, which limits their incentive to promote HSAs.

Since 2014, HealthSavings has been offering open architecture HSA fund lineups for advisors, giving them thousands of funds to choose from. In addition, we’ve provided flexible compensation opportunities that gave advisors control over how they got paid. Since HSAs are an essential piece of a comprehensive retirement strategy, our goal has always been to aid and empower advisors with their HSA offerings as much as possible.

We’ve found that these two factors are invaluable in helping advisors promote HSAs well. However, we’ve also discovered two obstacles that can negatively impact advisors’ production and disincentivize them from promoting HSAs.

1. Participants and employers viewing HSAs as spending accounts for current medical expenses, rather than retirement vehicles.

If participants and employers aren’t seeing HSA funds as a long-term investment, their tendency is to withdraw funds to pay for current medical expenses. Because of this, advisors have no assurance of being consistently compensated from their managed HSA assets, since those funds could be withdrawn at any time. This disincentivizes them from promoting HSAs in the first place.

Participants and employers must have a clear understanding of rising retirement medical expenses and how HSAs are the best vehicle to pay for those costs. A recent Healthview study found that the average couple retiring in 2018 at age 65 can expect to pay over $400,000 in non-Medicare-covered medical expenses. Rather than shelling out an additional $134,000 in taxes by using 401(k) funds, HSA accountholders can pay for those qualified medical expenses tax-free and save their 401(k) dollars for other costs. Once participants and employers realize these facts, they’re more likely to salt their HSA funds away for retirement, giving advisors an easy partnership opportunity.

2. HSA providers disincentivizing the investment piece of HSAs.

Typically, HSA providers make more money from funds held in cash accounts rather than in investments. As a result, many providers subtly disincentivize accountholders from investing by charging investment fees or requiring accountholders to maintain a cash balance before they can invest (some providers require a $2,000 cash balance before accountholders can invest). Until these limits are removed, the majority of HSA funds will likely stay in cash accounts rather than being invested.

Since HSAs were enacted in 2003, HealthSavings has always seen them as powerful retirement savings vehicles. As a result, we offer first-dollar investing on all of our funds, meaning accountholders never have to reach a cash threshold before they can start investing (even with our institutional funds). In addition, we never charge investment fees or trading fees, giving you more of your money back for the future. And finally, we’re proud to offer diverse fund options from Vanguard and Dimensional, which have some of the lowest expense ratios in the business.

For advisors to best promote HSAs, open architecture platforms and flexible compensation abilities are a must. In addition, though, those advisors’ clients must be properly educated about HSAs’ retirement abilities, as well as set up for investing success by their HSA providers. With these pieces in place, advisors are well on their way to building a successful HSA offering.